Need to Convince Investors of Long Haul Model: AirAsia X CEO

CNBC.com

Thursday, 9 Feb 2012 | 1:52 AM ETCNBC.com

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AirAsia X, Malaysia's long-haul budget carrier, is realigning its routes to prepare for a listing. The airline recently announced plans to pull out of routes in London, Paris and India as it prepares to launch flights into Sydney in April. CNBC's Christine Tan spoke to CEO Azran Osman-Rani who was in town for the Low Cost Airlines World Asia Pacific 2012 Conference.

Q: The decision to pull out of unprofitable routes, is it mostly to get your house in order, to start the process for listing this year?

Well I think in a sense yes, because what we want is to be able to convince investors of the low-cost long-haul model, there are a lot of people who are skeptics out there. It's a proven model. In markets like Australia where we do have scale, having flown to three cities, we are in a positive net profit position as we are in China. So in order to be able to say, look, we are spreading ourselves too thin, (we can) pick and choose a few markets, have a scalable position, demonstrate that it's sustainably profitable despite some of the macro challenges, and that becomes an interesting story.

Q: When and where are you planning to list? In Malaysia or are you exploring a dual listing?

It's much too early. I think at this stage, it's important that we realign the portfolio, demonstrate that 2012 is going to be a much more profitable year especially without Europe and India, and then let's see. To be honest we will stand guided by our shareholders and what the advisors say.

Q: Will you be able to generate enough publicity and interest in your IPO if markets continue to stay volatile?

We think so, because what we are doing right now is pioneering a completely new sector. This is not another airline IPO story. It's not another Asia Pacific story. This is something that opens up aviation on a global scale and already, you're seeing new people coming into this space when before nobody said they wanted to come in. So the fact that we are real pioneers is a very unique story that we are positioning.

Q: Any plans to reinstate that London route in the future? Under what conditions?

We have committed to 10 of the next generation A350 planes. They'd probably come in 3-5 years depending on when the aircraft manufacturers are able to produce those planes. But those planes should have the right cost structure in terms of being 20 percent more fuel efficient than the current generation of planes. So that'll make a difference. And obviously we hope that in 3 to 5 years time, the European economy will bounce back and people would want to travel in and out of Europe.

Q: What about India? You also announced you're going to pull out of India citing high airport costs and restrictive tourist visas. Did you misread how lucrative India was for you?

Well there are two things. One, it was just unfortunate that just after we launched in India in May and August in 2010, in Mumbai and Delhi, respectively, the Malaysian government decided to tighten up visa restrictions. And this is a critical issue for the Indian market because it's predominantly tourists from Indian coming into Southeast Asia. It places Malaysia at a real competitive disadvantage on the tourism scale because those same tourists from India have choices to go to Thailand or Singapore where it's more convenient with visa arrival facilities.

Issue two for us is the fact that you know, having suddenly achieved a breakthrough in getting route approvals for places like Sydney and Tokyo Haneda, you have to make a choice right? We don't have immediate spare aircraft available and if we did not capitalize on the Sydney approvals as they came available, we would be at a disadvantage.

This is an excerpt taken from Managing Asia, CNBC's longest-running feature program. Catch the show with anchor Christine Tan on February 10 at 1830 (SIN/ HK) and repeats over the weekend on CNBC.

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